Don’t be cagey about your pricing

Being cagey about your pricing doesn’t work. That was the key message I took from a recent survey by SAP on how Australians shop online.

As many as 6 out of 10 Australians reported abandoning an online shopping cart when shipping costs were higher than expected.  46% left the cart after using the site for a price comparison and 32% terminated the transaction because stock was unavailable.

How to address each of these issues? Here are my tips.

1. Shipping cost

People hate paying for shipping, and hate being surprised by it even more. If you charge shipping, that’s OK, but you have to be smart about how you represent it. List it on your home page, ideally as a low rate “flat” cost, and consider creating a threshold at which customers qualify for free shipping.  Why? It will increase propensity to buy more to avoid paying for something they don’t value. Failing that, provide a “shipping cost” estimator before people get to the cart to ensure they know what they are signing up for.

Shipping also gives you another promotional lever. Like the mattress shop that delights a customer who is buying a $2000 bed by waiving a $50 delivery fee, consider running special “free delivery” events to drive sales.

2. Price comparison

Price comparisons are a fact of life, so it’s up to you to present your product in such a way that value seems undeniable. How? One way is to use numbers psychology to diminish the perception of cost. Consider:

  • Whether to use rounded or specific numbers (e.g. $20 or $19.95)
  • The sequence of mark-downs (e.g. was $45 now $25 or Now $25 was $45)
  • The size of the typeface you use (e.g. whether the RRP of discounted price should be larger)
  • Whether and how you should use dollar signs and decimals

You can also use choice architecture to make some products look better than others, moving the customer’s focus from a comparison between competitors to a comparison within your range.

Further, consider how you describe the products. Focus on the benefits for them (the why) before the features (the how), and what they get (the value) before the give (their money).

3. Stock availability

Out of stocks happen, but that doesn’t mean you have to irritate your customer. Include stock availability on the product page BEFORE they add to cart. Leaving it until the cart page means they have psychologically committed themselves to the purchase and will feel very let down by you. It also doesn’t hurt to have messages like “only 5 left” to increase urgency to act through scarcity.

This article also appeared in Smartcompany.

Five oranges

Let’s say I give you five oranges. Is that good?

It depends.

Did you want four oranges?

Did you want six oranges?

Did you want five apples, not oranges?

Did you not want anything at all?

Whether the act of giving you five oranges was a good or bad thing depends very much on context.

And yet, in business, we often seem to forget to consider the context of the exchange we have with our customers. We overlook the role we play in shaping the context to ensure our offer is always a good thing.

So is giving you five oranges a good thing?

It depends.

Or-an-ge glad I gave you oranges?

To understand context, we start by asking some basic questions about what is happening.

Who are you to me? If you are a stranger or friend will impact how the act is perceived. Have we been discussing oranges at length, or has this come out of the blue?

Where are you? If you are in a fruit shop and I am the retailer, there’s a chance it’s a commercial transaction. If you are at a sporting event and the oranges are segmented, it’s likely you will be distributing them to those on the field. If you are about to board an airplane, it will seem inconvenient and odd.

Who is around you? Are others there to help you carry them? Do you want others to see you receive the oranges, or will this be embarrassing? If you are at a Mango Growers convention, it may seem inflammatory.

What time of day is it? Presenting you five oranges at 10pm may not be as helpful as 7am.

What are your needs? Your wants? Do you hate oranges? Do you have more oranges than you know what to do with? Are you suffering scurvy and desperate for vitamin C?

Contextualising value for your customers

Now that we have considered the context in which the transaction will take place, we can move towards shaping perception of value.

Remember, value is relative, not absolute. That means your customer will be comparing what they get and have to give with a frame of reference.

You therefore have two choices as a business.

You can let them use their existing frame of reference. This is dangerous.

Or, you can create a new frame of reference. This is smart.

I once had an accounting practice send me a proposal for services, for example. This is how they communicated price to me.

Pretty standard phrasing, right? The problem was they left me to define the frame of reference. Was $2,000 good value or not? If I had $900 in mind, then $2,000 seemed expensive. If I had $5,000 in mind, it seemed cheap. I didn’t end up accepting their terms.

Remember, our job is to frame the value of our goods and services to encourage our customer to proceed. Here are many techniques you can use, but let’s tackle two now: numbers and names.

Number framing

Contextualising the numbers you share with customers can make or break your interaction. Your success depends on the first number they see as it ‘anchors’ their perception of what follows.

Use a low anchor to be seen as generous

Use a low anchor if you want to be seen as generous e.g. “I know you only asked for four oranges, but I wanted to give you five as a thank you for choosing us”, or “last year’s bonus was $1200, but this year I’m pleased to say you will receive $1700”.

Use a high-anchor to diminish perceived cost

Steve Jobs used a high anchor when introducing the iPad so we would think it was great value. He started by citing ‘pundits’ who said it would be priced at $999 before thrilling the audience by revealing it would only be $499!

For the accounting practice, that could mean contextualising value as follows: “For larger clients we typically charge $5,000, but for your portfolio it would only be $2000”.

Or, if they didn’t have tiered pricing, they could use another larger number to anchor perceptions. For example: “Your current portfolio is $1,245,678. For us to manage everything we’ve discussed for you the fee will be $2000 plus GST.”

Re-set the anchor

What to do if they have a fixed expectation and you can’t deliver? For example, they wanted six oranges but you only have five to give?

Provide a reason for the shortfall, ideally citing an external event that is out of your control and likely to be affecting alternative providers as well, before framing about what you can do for them, right now. For example: “Unfortunately there is a shortage of oranges at the moment. What I can do for you is give your five right now, and arrange for an additional orange to be delivered to you tomorrow.”

What if the product or industry category has a fixed anchor, but you want to charge more? Starbucks faced this issue when launching in the US. The existing anchor for diner coffee was around $1, but they wanted to charge 4-6 times that. How? They re-framed what ‘coffee’ meant. From their store fit-outs with couches, cool music and the smell of roasting beans, to the fancy names they gave their drink sizes (Grande, Venti), they created so much distance between ‘coffee’ and “Starbucks” that they could re-anchor price expectations.

Back to the accounting practice. If the customer is used to paying $900 and they charge $2000, they need to re-frame expectations of what services from this accountant means. One approach is to offer the $2000 as the most basic option, introducing two more expensive options to drag the customer up to a higher anchor point.  Now the customer is comparing $2000 to $6000, and thinking they need to at least move to the $4500 option to get value.

Name framing

People are persuaded by descriptions. Rather than just give you “oranges”, I am giving you “sweet, juicy, sun-ripened organic oranges from Australia’s most awarded orchard”. A restaurant was able to increase sales of one item on its menu by 27% by changing the description from “broccoli” to “seasoned Asian-broccoli” (Just & Wansink 2009).

The language we use conjures up images in the minds of our customer. Not only does that mean paying attention to how we describe our offer, but what we call the product itself.

Imagine you were selling sweets, for example. Calling them “fruit chews” rather than “candy chews” would likely double consumption (Irmak, Vallen & Rosen Robinson 2011).  

Staging cocktail hour? Listing a drink as “Red Bull and Vodka” rather than “fruit cocktail” would prime your guests to act 51% more intoxicated.

If your product or brand carries a taint due to the connotations of what the name represents, consider changing it. Kentucky Fried Chicken moving to KFC and British Petroleum becoming BP are just two examples of companies distancing themselves from the original meaning.

Common product names you may have seen (or used) have their own framing connotations

  • Standard: Use to normalise it as a default. Avoid if you don’t want them to choose it.
  • Basic: Use to signal no-frills, low-cost and build tension about selection. Avoid if you don’t want to disparage your product.
  • Essentials: Use to signal they can’t live without. Avoid s lowest cost option because it will reduce impetus to upgrade.
  • Achiever: Use to signal aspiration. Avoid for lowest cost option.
  • Pro: Use to signal status difference between pro and amateur. Avoid if all options are for pros because it loses its meaning.

So you are about to give your customer five oranges. Is that good? It depends…on you.

This article also appeared in Smartcompany.

How one small thing increased sales by 77%

A meal delivery service in the US was able to increase sales by 77%. How? By changing the way it represented its pricing.

Periodic vs. aggregate pricing

Researchers Atlas and Bartels (2018) (PDF) recently delved into the issue of how to best structure pricing terms.  Should you break the price into smaller, periodic payments, or hit them with a lump-sum? $16 a day or $99 a week?

Taking insights they gained in the lab, the researchers worked with a million-dollar prepared food delivery business on two versions of their website banner ad.

$16 a day vs $99 per week ads

In the first ad, pricing for meals was represented as $16 a day (periodic pricing). In the second, the price was instead represented as $99 a week (aggregate pricing).  Across the 12,648 first-time (unique) visitors to the site over five weeks, the price expressed as “per day” resulted in 81 transactions at a conversion rate of 1.3% compared with only 47 transactions at 0.7% for the “per week” ad, generating an additional US$5,200.  This is despite the cost per day being more expensive for customers than price per week offer!

Periodic vs aggregate pricing

When the analysis was expanded to include repeat customers as well as first-timers, similar, though slightly diluted, results were found.  Price per day garnered 19% more orders than per week, with 185 transactions compared with 159.

This supported the researcher’s contention that periodic pricing encourages customers to focus more on the frequency of benefits they receive. In other words, they conceptualise receiving multiple benefits (i.e. meals taken care of every day of the week) rather than a single, aggregated benefit (i.e. one delivery of meals per week).

It also supported the contention that first time visitors are more sensitive to how pricing is communicated. Where repeat customers understand your pricing and are more focussed on getting their order processed, first-timers will be seeking this key costing information.

Pennies-a-day

This “pennies-a-day”, periodic pricing concept is not new, and has been used to make the cost of something seem manageable.  It’s not without it’s caveats, however.  As the researchers note, Gourville 1998 found pennies-a-day can backfire once the daily amount reaches a ‘non-trivial’ threshold. Further, Gourville 2003 found consumers would rather pay a monthly sum than daily on property taxes, mortgages and income tax, suggesting the type of product may have a bearing on when it is most applicable.

Key takeaways

This latest research contends that periodic pricing is most effective when the product (or cause in the case of charities) is highly affecting. In short, it’s best when people can imagine themselves enjoying the benefits, and seeing those benefits at a greater frequency is a positive.  People expressed a greater intent to lease a luxury car, for example, when it was represented as $20/day rather than $7250/year not because the cost was a smaller unit, but because the benefits were more salient.

There’s a lot of nuance when it comes to pricing, so to work out whether periodic pricing is right for you, I’d encourage you to run some tests of your own. Set up some A/B testing with a banner ad on a landing page, or, if that’s too difficult, run some low cost ad-word campaigns that promote your prices using either periodic or aggregate amounts. See what people click on, and then make changes on your site and in your collateral to represent your pricing in a way that best resonates with your customer.

This article also appeared in Smartcompany.

How congruence impacts conversion

An ad that always grabs my attention when flicking through in-flight magazines is one for men’s elevator shoes.  While I am not their target market I always find myself looking twice.  Why? Partly because it’s like one of those ‘spot the difference’ cartoons, where the pictures are similar at a glance but then different the more you look. But more importantly, it’s because theirs is an example of a cleverly congruent communication.

Engaging the customer

Recognising that some men may feel embarrassed, this ad uses a few techniques to destigmatise (and reduce anxiety about) the purchase of shoes with lifts.  To start with, the models look directly at the reader, engaging them but also inferring that there is no shame in wearing elevator shoes. Further, they normalise the shoes by citing the 50,000 men who already use them and demonstrate how the hidden heel means it looks like a regular shoe so no one will ever know.

But what I most love is the height scale they use. The model’s “before” height is a rather tall 185cm (6’1), with his “after” clocking in at a towering 191cm (6’3). Two things about this. First, they are suggesting that elevator shoes are not just for shorter men, thereby removing any stigma about their purchase. Shorter guys don’t have to feel that they are buying the shoes because they are short, in other words.

Second, notice how the model’s head is breaking through the blue height line? This signals that he is now so tall and wonderful that he cannot be contained by average measurement. Furthermore, the models are positioned closer to the top than the bottom of the page, again supporting the inference of height.

This ad great reminder of how visual design needs to be congruent with the substance of your message. To sell a product that makes you look tall, you need to represent tall!

Make your message congruent

The ease with which your customer relates the story you are trying to tell with how you tell it can have a significant impact on your conversion. Known as the size-congruency effect, researchers across a range of domains have tested how elements such as font size and word placement change recall and comprehension.  For example:

  • In one study, price markdowns where the original price was represented in a larger font than the discounted value outperformed ads where the original price was smaller. Why? The discounted price was literally smaller than the original.
  • In another, people were asked whether particular words were related. Swapping the vertical position of the words “attic” and “basement” so they were no longer congruent caused people to be slower in their processing of the task.
  • Faster responses have also been received when powerful words are written in larger rather than smaller font.

How does size-congruency look in the real world? Here’s an example of two financial institutions trying to market low interest rates. The one on the right with the smaller font will have much more luck engaging its audience because the image, font and rate are sending the same message.

The upshot is when it comes to the visual design of your ad, collateral or website, size-congruency means being deliberate about where things are positioned and on what scale.  Make the message congruent and you vastly improve your odds of success.

This article also appeared in Smartcompany.

Move the shampoo

I was staying with family overseas recently and when we returned to the house after the cleaners had been, I noticed something strange. Bottles of shampoo and conditioner had switched position, and the hand lotion was now where the hand wash had been.  “How annoying”, I first thought, after trying to wash my hands with lotion. But then a second thought lodged in my mind; “how brilliant!”

Move the shampoo

When you are working in a service industry, like cleaning, accounting or consulting, people pay you for an outcome – a clean house, a tax return or some professional advice, and placing a value on that can be tricky.

Take the oft-cited anecdote of the mechanic, for example.  A guy takes his car to a mechanic because the engine is faltering. The mechanic picks up a hammer, hits the engine and it begins to run perfectly. “That will be $100”, says the mechanic. “$100? That’s outrageous – all you did was hit the engine!” the customer splutters.  “It was only $1 to hit the engine”, the mechanic replies calmly. “it was $99 to know where to hit it.”

The issue is often one of perceived effort. People are more willing to pay if they feel it has cost you in sweat to deliver the service.

That was the genius of the cleaners moving the shampoo bottle. It was their way of saying “we cleaned absolutely everything and everywhere”. They deliberately interrupted their client’s system 1, habitual thinking with a system 2 reminder.

Show me your effort

If you are in professional services and occasionally get push back on your pricing, it means your customer is not convinced of your value.  Here are some tips on how to bolster your stocks.

  • Talk about other projects you’ve worked on and the challenges you faced in coming to a solution. Get them to feel you have ‘rolled up your sleeves’ before so they know you have what it takes.
  • Sketch out a project timeline including key milestones so they get a feel for what’s happening even when you are not with them.
  • If they haven’t seen you much, send through short progress updates via email to assure them you are working on their project.
  • Create artifacts of your effort. For instance, take photos of your brainstorming and share them with your client (see example below).
  • In your debrief, mention any ideas you discarded along the way – don’t just tell them the answer, take them through the permutations it took to get there. Your goal is to give them a sense of the effort you have expended (this is like moving the shampoo).

Similar lessons can be applied to products too. Talking about the providence of the product, how many hours it takes to manufacture, the craftsmanship involved, and/or its special characteristics can enhance perceptions of value.

Don’t take your value for granted

In short, if you take your skills and expertise for granted, your customer will too. While whatever you do may come relatively easily to you, you are being employed because it doesn’t come easily to others. Show a little of what you have expended and your customer will value you for it.

This article also appeared in Smartcompany.

Late fees vs. on-time discounts, which drives more effective behaviour?

The Sydney city council has done something very un-council like recently – it’s scrapped fines for late library book returns. To their surprise and delight something beautiful happened as a result – more books were returned.

Fines penalise people for doing the thing you want them to do

The threat of a fine can sometimes be useful if you are trying to get people to do the right thing. In the library’s case, the late fine may have encouraged a percentage of lazy folk to return books by the due date. But there’s a big downside.

A fine penalises customers for (eventually) doing the right thing, which sends a very negative message. Many will choose to go AWOL instead, avoiding the fine by never using the service again.  For the sake of a fine, you’ve lost a customer and they’ve lost access to your services – a lose-lose proposition.

Defunct video chain Blockbuster learnt about fines the hard way when upstart Netflix disrupted the industry back in the 1990’s. Not only did Netflix mail DVDs to members, reducing the effort of going to the store, they had no such thing as a late fee. Suddenly customers were free to view movies how and when they wished.

As Blockbuster discovered, the big problem with fines is that your customer will resent you. You are setting up a paternalistic, blaming, low-trust dynamic between you and your customer. Sadly, most Australian phone providers are still charging customers $10-$15 for late payments as follows:

Late payment fees

Discounts reward people for doing the right thing

An alternative way of encouraging customers to do the right thing is to offer them a ‘pay on time’ discount. Many utilities providers in Australia, such as those below, now do this as a matter of course.

Discounts for on-time discounts

Discounts like this work because customers take ownership of their own negligence. With a fine, a customer will blame you. With a missed discount, the customer can only blame themselves.

Summary of pros and cons

When influencing customer behaviour there are pros and cons for both late fees and discounts.

  • Late fees are a form of punishment – penalising your customer for making payment – and they focus on past behaviour in an effort to influence future behaviour.
  • On-time discounts are a form of negative reinforcement – the larger payment is avoided by paying on time, and the focus is on influencing current behaviour.

Which to choose? It will depend on your industry, your margin and how you want to use your resources but from a behavioural perspective, on-time discounts are hard to beat.

  Pros  Cons
Late feesCan “waive” fees on a discretionary basis to gain favourWill motivate customers who hate penaltiesCustomer resentmentCost in recouping fees and managing disputed feesLoss of customersBlame is with you
On-time discountsCash flowCompels loss averse customers not to ‘sacrifice’ their discountCustomer retentionBlame is with customerHigh take-up rate might impact margins (esp. with direct debits)Cost-effective administration

This article also appeared in Smartcompany.

How to convert customers from free to paid

Offering a free level of product or service is a good way to get people involved in your business. But how do you then move them from free to paid? I’ve written before about a business who did it well, so let’s now look at one who, in my eyes, got it wrong.

Winding back what you’ve given away

A web service that I have been using recently advised subscribers that their free plan was changing.  In the words of the CEO; “We’re pulling back many of the features available in the free version and imposing some of the standard limits that other free products have.”

The reason? “Unfortunately, by offering such a robust free product, we devalue ourselves more than a little and divert resources from the advancement of our product.”

I completely understand their conundrum. To attract customers they’ve provided a great service, but the service has been so good that customers see no reason to start paying. They’ve given too much away.

Presenting the offer

After introducing the change, the web service presented customers with two options; move to the (significantly constricted) new free plan or pay $300. Whoa!  That’s quite a jump and I think their conversion will be (a) pretty dismal and, for those who do move across, (b) done very reluctantly. 

How the free and paid options were presented

How to improve the odds of conversion

Here are a few behavioural techniques this business could have applied to improve their chances of conversion.

  • Used a monthly (or weekly) price to make it seem less expensive. After all, $25/month seems a whole lot more palatable than $300
  • Reduced the prominence of the price, including using a smaller font size and folding it into the text so it would be contextualised by benefits
  • Included a “sweetener” offer, so listing the “Basic Plan” RRP as $400 but marking it down to $300 for a limited time for instance (a.k.a. anchoring)
  • Included a less expensive “basic plan” that was priced somewhere between $0 and $300, rebranding the current basic as “standard” and presenting three options instead of two
  • Used a table display to compare the two options, making the free plan look unattractive.  The following image, for example is based on a real-life software company. Note how ticks and crosses can be used to make the free option feel like the weaker choice. 
Using ticks and crosses to create tension between options

Guidelines for converting free to paid services

  • Don’t give too much away in the first place
  • Make something about your free version a bit painful (e.g. ads appear), so the proposition to pay relates to having that pain go away (e.g. ads removed)
  • Build tension by illustrating the benefits of paid and disadvantages of free
  • Minimise the perceived cost by framing the price using price anchors (e.g. RRP and mark down), monthly rather than annual values and displaying the price in a more discreet typeface and position

This article also appeared in Smartcompany.

How to ditch discounts and win customers

Aussie retailers are doing it tough. The Christmas period failed to meet expectation, large internationals like Amazon are knocking on the door and consumers are demanding bargain prices. It’s no surprise then that many retailers have fallen into the trap of relying on discounts to win business. But anyone can discount – it’s a lazy form of marketing which squeezes your margins without providing any sustainable differentiation.

So what else can you do? Here are three strategies to give your customers the same buzz from a discount without penalising your pocket.

1. Sequencing your prices

When Steve Jobs launched the iPad, he was very particular about how he introduced price.  Teasing the audience that it would cost $999 before revealing it would “only” cost $499, Jobs delivered not only a revolutionary technology, but a master class in the behavioural principle of anchoring.

Anchoring tells us that people latch on to the first number they see and use it as a reference point against which subsequent numbers are judged. Higher prices hurt, lower prices feel like a bargain. Indeed that’s why discounts are so compelling – your customers can see what they are getting relative to the anchor.

But anchors can be a curse if you can’t control them. Ultimately, in order to convince your customer of value you will need to understand what they are using as their reference point. Have they walked into your store with a number in mind? Have competitors been advertising a similar offer? Have you displayed cheaper products closer to the entrance or first on your webpage?

When customers are low-anchored

If your customer’s anchor is lower than you are charging then you have some work to do. Your two options are:

1. Convince them why you are worth more – higher quality, longer life etc. Your challenge with this strategy is making your promises feel as tangible as price.

2. Shift the anchor – reframe your product or service so it no longer makes sense for that anchor to apply. Starbucks did this when they reframed how much Americans should pay for coffee. Instead of being anchored against $1 drip coffee served in diners, Starbucks completely reengineered the experience of coffee, from the smell of roasting beans to cool music, free Wi-Fi and plush chairs, which allowed them to create their own new anchors (Venti, Grande, Tal and Short) for what coffee should cost (i.e. $3-$6).

When your customers are anchor-less

If yours is a unique product or service it means your customer will use some form of proxy to guess how much you are worth. Until Jobs confirmed the iPad’s pricing, for example, a laptop or mobile may have served as a proxy.

Thankfully, pointing out why you are different can displace proxies. In a sense, you want to be an orange to the proxy’s apple, making it difficult for the customer to compare one with the other.  Your challenge in this scenario is to be similar enough so the customer “gets” you while different enough to warrant unique pricing.  This is what Jobs did – explaining the iPad was kind of like a mobile and laptop but actually very different.

When your customer is anchor-less, it’s your role to fill the vacuum. That means being very careful about what price you mention first. If you know your customer will likely choose the mid-range option, first talk about the top of the line. Why? To anchor them to the higher price so that the mid-range option feels like a bargain, just like Jobs did with $999 before $499.

2. Ranging your options

As already mentioned, discounts work because they compare a regular price with a reduced price. It is the relative difference that is appealing. But discounts are not the only way to give your customers this feeling; you can do it through your product structure.

When the first bread maker came on to the market, customers didn’t know whether it represented good value. The answer? Introducing a slightly more expensive version that served as a point of comparison. Suddenly the first (and now seemingly less expensive) model started to sell.

The lesson here is that you can introduce other options into your product range to help influence customer choices. A more expensive option (a.k.a. the anchor) can help make a middle option look less expensive, and a cheaper option with fewer bells and whistles can make more expensive options look better value for money.

3. Communicating the price

How you communicate the price is another opportunity you have to convince your customer. The size of typeface, whether you use decimals, rounded numbers or commas and even dollar signs can all impact the message you are sending.

In short:

  • People mentally rehearse numbers as they are reading them, so $14.90 will be perceived differently than $15
  • However, decimals elongate the number and can make it seem larger than it is 
  • Rounded numbers can signal your preparedness to sell more quickly
  • Dollar signs have been shown to trigger negative associations and result in less being order from a menu
  • People think prices written in smaller typeface are smaller

I know retail is tough, and price plays a significant role in convincing customers to buy. But before rushing to discount, focus on how you contextualise and communicate your price. You may be surprised how small tweaks can result in significant gains.

This article also appeared in Smartcompany.

To sell more quickly, round your prices

Let’s say you want to move some stock quickly. How do you let your buyer know that you are open to negotiating? According to some recent research, it could be as easy rounding your price.

How you represent your price is as important as what the price is

One of the key decisions we have to make in business is how we should price our goods and services. Not only do we need to come up with a price point that we think the market will accept, we have to work out how to display the price.

Should we use decimals? Commas? Dollar signs? How big should the typeface be? What typeface should we use? What colour? Should the number be rounded or not?

As with most things, the devil is in the detail and sadly too many businesses are still relying on guesswork and intuition rather than science.

So here’s a bit of what the science tells us.


Signaling your eagerness to sell

Imagine you are an impatient seller listing on eBay. You are less interested in maximising the sales price and more interested in getting the stock sold so how can you signal your eagerness to sell? Are you better to list your price as $200 or $198? A rounded number or a precise number?

According to a recent study which analysed over 10.5 million eBay “Best Offer” listings, rounded number listings;

  • received offers approximately 6 to 11 days sooner on average than precise-number listings and
  • were 3%-5% more likely to sell than precise-number listings.

However

  • Rounded number listings attracted lower offers and sold at prices that were 5%-8% lower on average than nearby precise-number listings.

They also found that sellers who listed a rounded number made less-aggressive counter offers and were more likely to settle with their buyer whereas those who used precise numbers tended to stick to their guns and bargain more aggressively. In other words, it seemed the sellers using rounded numbers were much more ready to do a deal.

The researchers also analysed sales data from the real estate market and similarly found “round numbers are correlated with lower sale prices (which) suggests that round-number signaling is more a general feature of real-world bargaining”.

This lead the researchers to conclude that round numbers act as a signal to the buyer that the seller is looking to get the deal done. In their words, a “cheap-talk” signal.


Bringing some other research into the mix

You can take from this latest research that a rounded price in the context of a negotiation sends your buyer the subconscious message that you are keen to sell.

But that is not your only consideration when it comes to pricing.

For instance, whether to use rounded or precise numbers may depend on the type of product or service you sell.

Researchers investigating the impact of rounding found that for hedonic purchases (those that make you feel good like holidays and wine), rounded pricing (eg $40.00) did the better job of increasing purchase intent. For things that are utilitarian (insurance, buying a camera) however, non-rounded (eg $39.95) was more effective.

Other researchers have delved into how people process numbers, and whether this is impacted by elements like decimals and commas. Sure enough they found the inclusion of commas (e.g., $1,599 vs $1599) or cents (e.g., $1599.85 vs $1599) led people to perceive the number to be bigger. Why? It seems we spell the number out in our heads and equate more syllables with numerical magnitude.

And yet more research has found that the size of the typeface you use in your pricing can impact how it is perceived, concluding that if you want people to think the price is low, use a smaller print.